A federal judge in Denver dealt a blow this week to the Securities and Exchange Commission’s civil lawsuit against five former Qwest officials, including former chief executive Joe Nacchio.

U.S. District Judge Marcia Krieger ruled that the SEC doesn’t have enough evidence to prove initial allegations that the defendants improperly booked revenue for Qwest from 1999 to 2002. She ordered the SEC to focus on claims that Qwest misled investors by not separating monthly, recurring sales from lump sum, one-time revenue in the company’s regulatory filings.

Investors and analysts generally place more value on recurring revenue because it better reflects a company’s financial condition.

“It becomes a very technical case, and sounds like one that is not going to be very easy for them to win,” said former SEC attorney Peter Henning, now a law professor at Wayne State University.

The SEC said today that it will not drop the 5-year-old suit and is deciding whether to ask for a reconsideration on Krieger’s ruling.
“The SEC is planning on going forward,” said SEC attorney Polly Atkinson.

Krieger’s order states that she has not addressed “the major thrust” of the case.

“That should tell you what part of the case has been affected by this,” Atkinson said.

In addition to Nacchio — who is serving a six-year prison term for criminal insider trading — defendants in the SEC case include former Qwest president Afshin Mohebbi, former chief financial officer Robert Woodruff and former accountants Frank Noyes and James Kozlowski.

The SEC is seeking the repayment of stock-sale profits, bonuses and salaries earned from 1999 to 2002.

Initial claims focused on billions of dollars in supposedly phantom revenue that Denver-based Qwest booked from swaps of network capacity with other telecommunications companies. Qwest recorded the revenue in a lump sum rather than spread out over the life of the multiyear contracts

The suit is now focused, in large part, on disclosure issues — a change that could trim several weeks off a potential trial and cut the number of witnesses by at least half.

A five-year-old civil fraud lawsuit lodged against former Qwest chief executive Joe Nacchio and four others appears headed for trial, as the Securities and Exchange Commission acknowledges in a court filing that a settlement with all of the defendants is unlikely.

Separately, Nacchio is seeking to have the case transferred from federal court in Denver to Kansas or another district, citing a study that shows 64 percent of potential jurors in Denver believe he is guilty.

The SEC discloses in a court filing that it held settlement talks with attorneys for former Qwest president Afshin Mohebbi in September and November. It states that “presently there is no possibility of settlement” with Mohebbi.

“It appears that there is little possibility of settlement with all parties, although there may be settlements between some parties,” SEC attorneys wrote in the filing.

SEC cases are usually settled out of court.

Nacchio, Mohebbi, former Qwest chief financial officer Robert Woodruff and former Qwest accountants Frank Noyes and James Kozlowski are accused of engaging in an accounting fraud that inflated the Denver-based company’s revenue by $3 billion from 1999 to 2002. Qwest later restated much of that revenue.

Laura Keeney writes about aerospace and airlines for The Post. When she's not at work, you can usually find her taking in live music, reading voraciously, or doing something science-related and nerdy. She also loves The Clash ... a lot.

Emilie Rusch covers retail and commercial real estate for The Post. A Wisconsin native and Mizzou graduate, she moved to Colorado in 2012. Before that, she worked at a small daily newspaper in South Dakota. It's the one with Mount Rushmore.